Preheat oven to 350 degrees. Mix the peaches, 1 cup sugar, 1/2 teaspoon cinnamon, 1/8 teaspoon nutmeg, and the water in a saucepan and bring to a light boil. Lower heat and let simmer for about 10 minutes. Meanwhile, cut up the butter and place in a 3 quart baking dish. Place it in the oven to allow butter to melt. In a mixing bowl, combine the flour and remaining sugar. Slowly stir in the milk, stirring well by hand.